Chapter 11

Chapter 11 Bankruptcy

There are many different ways to file for bankruptcy, and each is suitable for a specific type of situation. When a small business finds itself encountering financial challenges and unable to pay back its creditors in a timely manner, it may be appropriate to file for Chapter 11 bankruptcy. This type of bankruptcy is generally used by businesses, though small businesses are not as likely to take advantage of it as larger corporations because the process can be both complicated. Still there are very specific factors that make Chapter 11 attractive for a small business, including the fact that it is the only bankruptcy option that makes it possible for a business owned by a partnership, limited liability company or corporation to continue operating while restructuring. It also provides benefits for those who are interested in reorganizing their liabilities but who are too deeply in debt to qualify for a Chapter 13 bankruptcy filing.

Understanding Chapter 11

People are generally familiar with the term Chapter 11 as it related to big corporations with household names. These big companies are able to go to bankruptcy court to seek approval for reorganizing their debts without having to shutter their businesses, thus providing them with an opportunity to get their feet back under them and regain profitability. Chapter 11 allows companies to do what it deems appropriate, including liquidating assets or shutting down parts of the company, in order to restore their business to a state of health.

Though we tend to think of major companies when we mention Chapter 11, there are a number of rules that make this type of bankruptcy filing particularly attractive to owner/operators of small businesses that are in debt. As a result of these special considerations, a Chapter 11 bankruptcy can often move along much faster than other types of filings, at much reduced expense.  Businesses that classify as “small business debtors”, which generally encompass those that owe less than $2,490,925,  file “small business cases.” They are often able to avoid the requirement of having a creditors’ committee to represent the interests of unsecured creditors and are provided with a longer exclusive period to propose plans counter to those submitted by their creditors. They can also waive the requirement to submit a disclosure statement. By the same token, small business cases have additional filing and reporting duties and must submit to additional U.S. Trustee oversight.

Pennsylvania Preference Avoidance Laws

One of the biggest challenges that can come up when a business files a Chapter 11 bankruptcy is being charged with preference in the payment of a debt in the days prior to filing for bankruptcy.  There is a 90-day window established prior to the filing, and when payments are made during that period of time, or for as long as a year prior to filing bankruptcy for payments made to family members or business partners, the debtor can be accused of being preferential in their transfer of assets and the creditors may be asked to return what they have been paid. Though there are a number of highly effective defenses against this charge, it is important to utilize the services of an experienced Philadelphia bankruptcy attorney in order to successfully make the argument that the payment was made as part of the normal course of business.

Call the Philadelphia Bankruptcy Attorneys at Jensen Bagnato, P.C. Today

Making the decision to file Chapter 11 bankruptcy is momentous, but it is only the beginning of the process. The best way to ensure that the filing is submitted properly and that you get all of the advantages to which you are entitled is to have an experienced Philadelphia bankruptcy attorney by your side, representing you and making sure that your rights are protected and that every step is properly taken. The attorneys at Jensen Bagnato, P.C. have extensive experience in successfully representing many Philadelphia clients in their Chapter 11 bankruptcy filings. Call us today to set up an appointment to see how we can make the process go smoothly for you.